Tax Type
Retail Sales and Use Tax
Description
Government contractor
Topic
Taxability of Persons and Transactions
Date Issued
05-12-2000
May 12, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period of August 1993 through May 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the business of selling copiers, computers, and camera equipment at retail. The Taxpayer was audited and assessed tax on retail sales for which the Taxpayer has no exemption certificates on file. While the audit has been revised based on additional information provided subsequent to the initial assessment, the Taxpayer continues to disagree with the tax assessed on sales to two customers. The auditor maintains that insufficient documentation has been provided to warrant removing the sales from the audit.
The first issue involves sales to Contract Claims Branch, which is a federal agency under the General Services Administration. These items were sold in order to fulfill a federal government contract. Due to the sensitive nature and confidentiality of the contract, the Taxpayer has not made the contract available for review by the department to determine the tax application to the contract. The second issue involves high speed copiers rented to ****, a customer that the Taxpayer maintains was an industrial manufacturer before going out of business.
DETERMINATION
In regard to the rental of high-speed copiers, based on the information you have furnished to this office, I will agree to remove these items from the audit findings. This position is supported by Code of Virginia § 58.1-609.3(2), the statutory exemption for industrial manufacturers and processors.
Contract with the Federal Government
In order to determine the tax application to a federal government contract, the "true object" of the contract must be determined. If the true object of the contract is the acquisition of tangible personal property by the federal government, the contract is considered a sales contract, and the transaction qualifies as an exempt sale to the federal government pursuant to Code of Virginia § 58.1-609.1(4). However, if the true object of the contract is the provision of a service, the service provider is considered the user and consumer of all tangible personal property consumed in providing the service, and is liable for the tax. This is true even if title to the property used in fulfilling the service contract eventually transfers to the government.
While I understand that the contract involved in this audit is of a sensitive nature, the department has audit personnel who have been given government clearance to review confidential contracts. Absent a review of the contract in question, the department has no alternative but to hold taxable the tangible personal property associated with this government contract. If you would like to furnish a copy of the government contract for the department's review, please contact ****, Office of Tax Policy, at ****. ***** will connect you with the appropriate audit personnel who have received clearance by the federal government. If you do not contact **** within two weeks from the date of this letter, I will assume that you will not allow the department's audit personnel to review of the contract, and the assessment associated with the contract will be immediately due and payable.
If you should have any questions regarding this matter, please contact **** at the telephone number listed above.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21943K
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period of August 1993 through May 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the business of selling copiers, computers, and camera equipment at retail. The Taxpayer was audited and assessed tax on retail sales for which the Taxpayer has no exemption certificates on file. While the audit has been revised based on additional information provided subsequent to the initial assessment, the Taxpayer continues to disagree with the tax assessed on sales to two customers. The auditor maintains that insufficient documentation has been provided to warrant removing the sales from the audit.
The first issue involves sales to Contract Claims Branch, which is a federal agency under the General Services Administration. These items were sold in order to fulfill a federal government contract. Due to the sensitive nature and confidentiality of the contract, the Taxpayer has not made the contract available for review by the department to determine the tax application to the contract. The second issue involves high speed copiers rented to ****, a customer that the Taxpayer maintains was an industrial manufacturer before going out of business.
DETERMINATION
In regard to the rental of high-speed copiers, based on the information you have furnished to this office, I will agree to remove these items from the audit findings. This position is supported by Code of Virginia § 58.1-609.3(2), the statutory exemption for industrial manufacturers and processors.
Contract with the Federal Government
In order to determine the tax application to a federal government contract, the "true object" of the contract must be determined. If the true object of the contract is the acquisition of tangible personal property by the federal government, the contract is considered a sales contract, and the transaction qualifies as an exempt sale to the federal government pursuant to Code of Virginia § 58.1-609.1(4). However, if the true object of the contract is the provision of a service, the service provider is considered the user and consumer of all tangible personal property consumed in providing the service, and is liable for the tax. This is true even if title to the property used in fulfilling the service contract eventually transfers to the government.
While I understand that the contract involved in this audit is of a sensitive nature, the department has audit personnel who have been given government clearance to review confidential contracts. Absent a review of the contract in question, the department has no alternative but to hold taxable the tangible personal property associated with this government contract. If you would like to furnish a copy of the government contract for the department's review, please contact ****, Office of Tax Policy, at ****. ***** will connect you with the appropriate audit personnel who have received clearance by the federal government. If you do not contact **** within two weeks from the date of this letter, I will assume that you will not allow the department's audit personnel to review of the contract, and the assessment associated with the contract will be immediately due and payable.
If you should have any questions regarding this matter, please contact **** at the telephone number listed above.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21943K
Rulings of the Tax Commissioner